3 reasons why CBA Pi pivots retail

Commonwealth Bank of Australia have just launched a video showing their new merchant payments solution called Pi.



This is truly interesting for a number of reasons:-

1.  As with previous innovators in this space such as Square, they are bringing together a number of different parts of the value chain within a single platform.  Watch out if you currently make money out of ePOS, stock control or loyalty!

2. They are creating a platform which is both open and closed - just like Apple.  It's open in that developers can build custom applications that add value (it's based on Android), but closed in the sense that CBA own it and will ultimately control it.  This is not something I've seen before from Square or PayPal.

3. The platform blurs the boundary between the user (the retailer) and the customer.  Any payment terminal allows interaction with the customer, but normally only in the sense of identifying themselves or possible picking their chosen payment type (check / credit account).  With Pi though the customer can truly interact, chosing for example how to pay amongst friends and I would assume select how they want to receive receipts.

The increasing use of tablets within the retail space is opening up more and more opportunities to create engaging customer interactions.  Unlike dedicated terminals or tills, with a tablet the scope is limited only by the imagination of the developers.  By CBA providing a platform like Pi that allows developers to create new functionality they benefit by having a constantly evolving merchant solution which they control.

CBA say on their website, "Pi is the future of business".  I'd argue it's also possibly the future of ePOS, e-receipts, acquiring, stock management, loyalty and anything else the merchant may think of or need.

The end of the line for payment cards?

Payments cards are a legacy of the last century.

Their design was necessitated by a need to be able to communicate the identity of the holder and the provider/guarantor of the funds. This resulted in a physical card format, originally paper, more recently plastic which has since proliferated in our wallets as both payment choices and payment providers have ballooned.

Originally used in the 1920's, the first payment cards were issued by merchants with customers having a different card for each merchant. Seeing an opportunity to simplify payments for customers and possibly to create competitive advantage, several companies in the late 1930's started to accept each others cards. However it wasn't until the 1950's when Diners Club, Amex and Carte Blanche came about that the wider concept of a payment network was created.

Now customers could use a single card to pay for goods and services and since then the expansion of merchants accepting these has grown to cover almost every conceivable category and territory. Indeed, the latest contactless cards are finally opening up new sectors like transport or fast food which have been stubbornly cash based up until now.

Whilst this has made life simpler by removing the burden of physical cash, it is not however how people think about money.

The use of these plastic cards has forced us to channel our purchases through them as we attempt to manage our finances but ultimately our finances are more complicated and granular. This means we tend to carry more than one card - a debit card for every day small payments, a credit card for personal spend, a second credit card for business spend, an Amex...just in case.

Even with these different cards, they still don't align to our budgeting.

When we save for a holiday then the payment for that holiday comes from our savings (which may then have to be moved to our current account to then pay the credit card). When we incur business expenses, we have to pay for these through our personal account based on payments made by our company which are then paid to our credit card. We're constantly moving money around to make it work in a convenient way and we just accept it as normal. It's how things have always been done.

Then I saw BankSimple and saw what the future may actually hold.

There are a number of great ideas and innovations within the BankSimple interface, but in my opinion, one of the greatest is the ability to manage your money within goals.

Essentially these allow customers to decide what they actually want to use their money for (new car / holiday / home improvement / nest egg) and then can allocate funds automatically to this. BankSimple make decisions about how to invest this (long term/ short term) and the customer is always in control, able to change payments, end dates or simply pause the goal for a while.

This works because they are not forcing a customer to take out a new payment card or setup a new savings account to keep their money separate. Instead, BankSimple lets the customer worry about what they want to do with their money and they will work out the best way to manage this behind the scenes.

This jam-jarring prinicple is how people think about money. They decide on different goals/expenses and make allowances for these on a regular basis to try and manage their finances and keep within their "safe-to-spend" balance as BankSimple term it.

Where I think this could get more interesting is when you look at this combined with some of the recent announcements about mobile payments - from Google Wallet to Visa Peer to Peer. At present, all of these solutions have tended to look at linking in a payment card or bank account to make the solution work. The mobile wallet concept simply moves the payment card from a physical plastic device to a virtual one.

Indeed, Google Wallet allows you to simply swipe the screen to pick the right payment card before a single tap then allows you to pay, redeem a coupon and earn points. Launching Google Wallet they said:-

The launch reflects Google's efforts to simplify and redefine the shopping process for both consumers and businesses. [..] Because Google Wallet is a mobile app, it will do more than a regular wallet ever could

Whilst their desire was to redefine the wallet, instead all they've really done at this stage is substitute it.

Osama Bedier, VP of Google Payments is quoted as saying:-

Our goal is to make it possible for you to add all of your payment cards to Google Wallet, so you can say goodbye to even the biggest traditional wallets.

To me though, the bigger question is whether there is a need for payment cards at all?

In the BankSimple world where money doesn't visually reside within accounts and instead has more meaning attached to it based on goals and budgets, then you can imagine that these virtual wallets may be able to access funds in this more natural way.

• When I go shopping, I should be able to pay from my household budget
• When I pay for a holiday, I should be able to pay from my holiday savings
• When I pay for a car expense, I should be able to pay from the allocation for motoring expenses

Don't have enough money in my budget? Well then simply extend me a line of credit for that purchase in that budget.

This would immediately give me visibility that my car expenses are in the red, and I can choose to pay these down more quickly. Rather than an aggregated, monthly credit card statement with every expense stuffed into a single number, i'd have real visibility of my money as it relates to my life.

Technology like Google Wallet is fantastic and i'm genuinely excited about what it will offer in the short-term. However it's going to take some real visionary thinking like that shown by BankSimple to truly redefine our relationship with money.

When that happens I think the need for payment cards, as shaped by the last centuries requirements may actually become a thing of the past and mobile technology will redefine not only what we pay with, but how we manage that payment.

Halifax Bank gambles on loyalty?

Halifax Bank announced this week that it is intending to run a lottery style monthly promotion called Halifax Savers Prize Draw. The scheme will reward savers with deposits of £5,000 or more (and who opt-in) with the chance to win one of three top prizes of £100k a month or smaller prizes of £1,000 or £100 - paying out a total of £6m in the course of the year.

While this is undoubtedly a promotion to attract new customers, it also has an interesting loyalty angle to it.

If Halifax attempted to create a "full" loyalty programme for savers this just wouldn't be rewarding enough to make it motivating. Savers are already paid out interest on their deposits and if there was much more room to manoeuvre on this to provide greater value then you would expect the bank to be looking here instead.

A lottery style programme however lets them provide a powerful retention mechanic for a fraction of the reward budget.

There are great previous examples of how powerful this can be. Research from the National Lottery Commission showed that 67% of the UK population had purchased a lottery ticket at least once and that about 40% of people played regularly (at least every week).

A more direct comparison to the Halifax programme would though be Premium Bonds, the UK government savings account which also pays out a lottery style prize. These are still proving popular with around 40% of the UK population having on average £1,131 in bonds. They have also proved increasingly popular in these tough economic times with a 26% increase in the amount saved since 2008.

Despite Harold Wilson MP, reportedly calling Premium Bonds a 'a squalid raffle…a national demoralisation' when he opposed their introduction, it seems they're the more acceptable side of gambling - with £21m of Premium bonds sold every day.

In an article back in 2010, the Daily Telegraph discussed why Premium Bonds are so popular saying:-

They remain popular primarily because, unlike most lotteries, Premium Bonds guarantee to return your capital. So they are widely regarded as a free chance for a flutter.

Just like a loyalty programme, both Premium Bonds and the new Halifax Savers Prize Draw do the same thing - provide a little extra for nothing. You still get to keep your money and uniquely with the Halifax you actually get to earn interest; however you also have a chance to get a reward. It's this reward, this promise of something for nothing which will make this scheme not only good for acquisition but also help to retain balances.

In a loyalty programme points are used to make the programme sticky, customers build up value in points and this helps to focus them on collecting more - remaining a customer and shifting/concentrating category spend. The power of this depends on how achievable the rewards are perceived to be.

In a lottery style programme however there is no increasing points balance - there is just a prize, potentially.

Instead, the stickiness in these types programmes comes from something less tangible - the gamblers fallacy. This is the fallacy of the maturity of chances, the belief that past results have an impact on future results.

If the coin keeps coming up heads, there is more chance of it coming up tails.

If the roulette wheel keeps coming up red, there is more chance it will come up black next time.

If I didn't win this month, or the previous 10 months then it's my time now.

This belief is what keeps people buying their lottery ticket and it's what will keep people retaining their savings account.

Whether you call it a lottery, a prize draw or a flutter, the gamblers motto still applies... "I’ll quit when I’m ahead".

Ask and you shall receive

One of the things I've noticed in the last couple of months is how worried people are about saying the wrong things. Robert Peston, the BBC Business News editor had covered the story of the credit crisis since the beginning and was credited with breaking the news of discussions between the banks and the government about a bailout which then resulted in the share prices of the banks in question free falling.

Over the following weeks it became difficult to tell if the media was reporting things they saw happening or causing things to happen. A number of commentators began to point the finger at Peston with some suggesting that he inflamed the situation rather than just reporting it.

When George Osborne, shadow chancellor discussed how the governments high borrowing could lead to a collapse of the pound he was accused of "talking down the pound" – so worried were people that simply saying it may be so might make it so.

In an article in the Telegraph the reporter denied that the media can cause a recession just by talking about it and then went on to say that what causes recessions is the relative optimism or pessimism within the economy – without seemingly connecting that peoples view of the economy is dictated by what they read in the press or see on the TV.

Whether the current slowdown is being influenced in any way simply by what the media say will always be hard to measure, but as any marketer knows, if you want someone to do something you simply have to ask them - unlike the media it seems, marketers do understand the power of suggestion.

Some quite scary research from Stanford University found that in tests with pre-school children, anything wrapped in a McDonalds label was rated as tasting better – even carrots and milk. Almost 77% of kids preferred the fries when wrapped in McDonalds packaging versus 13% when not. It would seem that telling kids McDonalds has great food repeatedly via TV advertising actually affects their ability to taste!

Looking at more direct suggestions, an incentive programme we ran a few years back for a credit card company was based around a simple statement – "can I put that on your <card name>". Just by asking the customer for a specific brand of card, we saw a huge lift in usage of that brand – for which the retail staff were rewarded. Card issuers spend a lot of money on direct marketing and loyalty programmes to encourage their card to be front of wallet and yet that can so easily be undone simply by getting the retailer to ask for a different card at the point of sale.

On the flip side I've seen marketing programmes which don't seem to be getting cut-through with customers. On one programme regular, glossy marketing materials were being sent to customers but there was no change in behaviour either within control groups or pre/post mailing. When reviewing the marketing materials it was clear to see why – there was no call to action – the customer didn't know what they were expected to do. The marketing materials were focusing on what the customer could get within the loyalty programme, without telling the customer what they needed to do in order to achieve it.

The call to action is the basis of direct marketing - if the communication asks the recipient to take a specific action, for instance calling a free phone number or visiting a website, then this is considered to be direct response advertising.

Whilst this is understood by direct marketers, it is sometimes overlooked by loyalty marketers. At all touch points within a loyalty programme the customer needs to understand what is expected and actually be asked to do it. Whether this is training the employee to say "do you have a loyalty card" to every customer so that the customer gets the card out of their wallet (or signs up), or sending communications with a clear call to action which maximises participation.

Having a clear call to action is probably even more essential in the current climate. With so many pessimistic messages being put forward by the media, anyone wanting a customer to actually make a purchase is going to have to be clear and concise about what the customer needs to do.

Being a little optimistic will probably help as well!

Without losers where would the winners be?

We certainly do live in interesting times – interest rates at the lowest since 1951 and if they go down much more then the lowest rate since the formation of the Bank of England. As ever there are winners and losers – mainly borrowers and savers respectively.

What's also been interesting is how the banks have so far responded – some such as the Halifax are only passing on part of the rate cut, others such as LTSB and HSBC will be passing the rate cut on in full.

The news grabbing the headlines though is the so called "collar" which many tracking mortgages include within the small print and which prevent the tracker rate from dropping below a given level. Financial institutions such as the Nationwide Building Society which have decided to keep the collar in place, thus not passing on all of the rate cut have received the full blast from the media.

All businesses though at some time have to make decisions on what is considered profitable behaviour and have to take tough choices which may adversely affect one customer segment so as to benefit another. Whilst it would be great for a financial institution to pass on the rate cut in full, if this is done at the expense of savers who normally represent a much larger segment of customers or indeed at the expense of the overall stability of the bank then this may not be "fair" overall.

Even before the current financial crisis financial institutions have had to make unpopular decisions. Card issuer Egg was derided in the press when it decided to remove a segment of 161k customers from its card book back in February due to a "higher than acceptable risk profile" – probably a prudent move now in hindsight.

These are exceptional times however and this causes many businesses to have to make difficult decisions within challenging timescales. Looking slightly more long term though every business has customer segments which provide very little return or worse still cost more to service than they return in profits. Normally termed "BZs" or Below Zero customers, they are an obvious target to reduce or remove so as to lift overall profits and benefit other, more sustainable customer segments.

There tends to be two approaches "managing" this type of customer segment - carrot or stick.

You can either create losers by penalising the customers in some way - charging them a fee or reducing customer service channels - or you can create winners by rewarding and recognising profitable behaviour in the hope of encouraging these customers to change behaviour.

First Direct made the headlines in 2007 when it introduced a £10 fee to customers holding a single bank account and not paying in a given amount. This "stick" approach probably looked great on paper by reducing the number of these unprofitable customers, increasing revenues through fee collections or increasing individual product holding – however it caused a storm of bad PR with many customers considering moving their bank accounts despite not being in the segment affected. Fees can be an effective means of creating customer engagement, but these typically work better at the top end where customers pay them in order to access additional benefits rather than at the bottom end where customers are being penalised for "bad behaviour".

A different approach to the same problem was put in place by ADBC Bank in the UAE. Rather than penalise customers for not holding enough products, ADBC rewards customers for holding more products. Their "carrot" approach called TouchPoints provides recognition and rewards across a customers whole financial relationship, allowing a customer to earn more value as they increase their product holding or usage. At a recent conference I attended where they presented the results of their programme so far, they demonstrated an uplift across all products, with some seeing as much as a 600% increase in acquisitions!

Sometimes timescales force a business to make decisions tactically – having to reduce costs quickly through punitive measures – however where time allows it can be much better for overall customer engagement to provide positive measures that reward and recognise profitable behaviours, encouraging all customers to make decisions which reward both them and you – creating a real win-win.

(Title: Quote from Casey Stengel - American Baseball Player and Manager, 1891-1975)

Without trust there is nothing

I was reading a new report this week from Forrester about how customers rate European banks. Across 7 different European countries, the UK stood out with the weakest scores to the question of whether customers felt their bank does what's best for them – with just 21% agreeing to this statement. Given the current credit crunch you could be forgiven for expecting this type of response as people lose faith in their banking institutions, however this is an annual survey and the results for 2008 are only marginally lower than for 2007. The report went on to discuss how customer advocacy improves a banks chances of winning new customers by word of mouth and that of those customers who think their main bank is a good customer advocate, the majority of these go on to be promoters.

Backing this research up, a recent study by Carlson Marketing of the financial services industry showed that customers with stronger relationships are 75% more likely to recommend to friends, 42% more likely to remain a customer and 57% more likely to buy additional products. As detailed within this study a key element of stronger relationships is trust which is defined as a belief that the company has the best interests of the customer at heart, and can be depended upon for respect, openness, tolerance and honesty.

Although many banks score badly in the area of trust, the UK based Nationwide Building Society has recognised this and actively looks to build trust with customers and potential customers. Its TV advertising highlights how other banks have preferential rates only for new customers – unlike Nationwide which has a fair pricing policy for all; it's ATMs highlight how there are no cash withdrawal fees and all its call centers are UK based. In 2001 the Nationwide launched an initiative to articulate the society's values to customers which included putting customers first, delivering best value and exceeding expectations. Since this time they have more than doubled their current account customers, tripled their credit card portfolio, significantly grown savings balances and doubled their annual profits. Not bad for a bank which is focusing on doing what's right for the customer, not just what's right for the bottom line.

The largest direct bank in the US, ING Direct announced recently that it will suspend foreclosure on all occupied family homes until March 2009 and suspend all evictions until January 15^th. Their CEO, Arkadi Kuhlmann is quoted as saying "We help customers buy homes with mortgages only if we believe they are suitable and affordable. Consequently, once we get customers into a home, we work hard to help them stay there. We hope this foreclosure suspension will provide some relief during the holidays to those experiencing financial hardships. I call on others in the mortgage industry to step up and help homeowners with foreclosure relief during these difficult times". Now obviously banks are not charities and if someone cannot pay for their home the bank will have to take steps at some point to recover their investment – however what ING shows is that this can be done whilst also recognizing that these are real people with real lives – this is sure to build trust as ING stands out from the crowd.

Spanish Bank Caja Navarra takes this one step further with its Civic Banking product. Unlike any other bank I've come across, Civic Banking tells you exactly how much money they make from you. Customers understand that banks are businesses and that business are there to make profits, however most customers don't actually understand how a bank makes money. Providing this clarity allows the customer to enter into an agreement with their eyes wide open, understanding what the bank is giving them and conversely what the bank is getting back. This isn't simply done however to provide transparency, the bank donates a percentage of the profits on the customers behalf to social projects. This allows the customer to see not only how much the bank is making, but also how much it is then giving away. The projects that the bank donates a percentage of profits to are not simply large charities but instead can be very small, localised projects, nominated by the customer and setup by the community. In one example a water saving project had requested £7,000 and this had been donated by just 113 people. Caja Navarra really do engender trust by providing true transparency and showing a genuine corporate social responsibility.

Given the importance of trust within relationships and the rewards that can come from this for financial institutions, there has been a noticeable hush from almost all banks since the credit crunch. For many this is probably due to still being in a precarious position and as the old adage goes, "when you have nothing to say - say nothing". However for many banks things have changed with government support stabilising them and so now is really the time to begin rebuilding trust.

LTSB in the UK are the noticeable exception to this with much of their recent outdoor activity focused around the message of a "bank you can bank on". While many of the larger banks in the UK have been focusing their advertising on savings messages - promoting great rates in the hope of attracting much needed savings balances - LTSB has been focusing their message on one of trust, reassuring customers and prospects that they are a bank you can bank on. If LTSB get it right all indications are that the savings balances will follow naturally.

Trust is a key component of customer advocacy, the visible expression of customer loyalty. Banks have historically scored low compared to other industries when it comes to trust and so now is the time to really put the customer first and start to rebuild that trust – the much needed profits will follow.